Veda Investment Managers Pvt. Ltd. Portfolio Management Services 1
Investment Philosophy – the 3 “U”s Investment Philosophy – the 3 “U”s 2
#1: What are we looking for? � We seek large discrepancies in risk:reward � Stocks trade like a bell curve with a large number of stocks trading at near fair risk:reward � We focus on stocks at the extreme where returns can be disproportionately high for the risk we take. risk we take. � The 3 “U”s approach 1. Undervalued: risk-reward trade off should provide margin of safety 2. Under-owned: we prefer stocks that have low FII, institutional investor interest 3. Undiscovered: low research on the stock We are looking for stocks with asymmetrical risk reward 3
#2: Research, research and more research drives our investment philosophy � Detailed research wins over gut feels and market sentiment � Process driven research to eliminate market noise – blend of science and art � Largely scientific process. This involves, screening to identify ideas and then detailed modelling to arrive at fair valuations. � Bit of art involved � We look at market sentiment and psychology � We try to stay away from the herd. “ Buy not on optimism, but on arithmetic .” —Benjamin Graham. 4
#3: What stocks do we focus on? � We focus on stocks at earnings “inflection point” � We are looking at high operating and/or financial leverage. � We buy stocks early before they are flavor of the market � Stocks we like have following characteristics � Stocks we like have following characteristics � Large size of market and attractive industry dynamics � Competitive advantage of the company vs competition � Strong Corporate governance "Even the intelligent investor is likely to need considerable willpower to keep from following the crowd." — Benjamin Graham 5
#4: Buy and hold for wealth creation � We believe in buying under-valued stocks and holding them for long term � Churn in portfolio is low � Buy early and sit on stocks like partly like a Private Equity investor � We buy unloved companies that are either out of favor or are undiscovered and unresearched. � We are willing to do deep research on the industry dynamics and company positioning. � We are willing to do deep research on the industry dynamics and company positioning. � We are passionate about being “dispassionate” in our analysis. When do we sell stocks? � When the stocks has rallied & is no longer cheap � Will I buy the stock at current market price? � When the reason for buying the stocks has not materialised � e.g. now competition come in or size of market changes. “The big money is not in the buying and the selling, but in the waiting” — Charlie Munger. 6
#5: Concentrated Portfolio I) Concentrated Portfolio 1. Our portfolio will be fairly concentrated with 12-20 stocks. 2. However, we will not initiate any stock with a more than 15% position when we buy the stock. II) Low Churn, long term holding 1. We intend to buy and hold stocks until we think the risk:reward no longer looks favorable 2. Our intention is to buy mid-cap stocks with low institutional interest, watch it grow in market cap and sell once it comes on the radar of institutional investors and sell once it comes on the radar of institutional investors III) Liquidity would be balanced with opportunities in PIPES 1. We would be willing to invest a portion of the portfolio in relatively illiquid stocks including PIPES (Private Investment in Public Equity) if we believe the risk: reward is compelling. IV) Market cap Agnostic 1. but above philosophy means significant part of portfolio in mid and small cap V) We will not be hugging the benchmark indices 1. Most of the portfolio could be out of benchmark bets. 2. At the same time we are aware of the benchmark returns and our endeavour would be to beat that. 7
Investment Process Investment Process 8
Investment Process Bottom Up Quantitative Approach Macro Approach screening for through � Global Indicators & Markets � Reasonable valuation � Macro Economic Analysis � History of earnings growth and return ratios � Debt gearing & Free cash flows � Industry Analysis ������� companies Stock Ideas Due Diligence Due Diligence Research & Modeling Research & Modeling The 3 "U"s The 3 "U"s ������ � Company management meetings � Detailed financial model � Valuation: PE, PB, DCF, RoE, Free Cash flow companies � Meetings with competitors, suppliers, distributors � Analysis of management's track � Ownership: FII holding, MF holding � Porter analysis record � Analyst Coverage ����� companies Portfolio Construction Constant Monitoring � monitoring growth parameters including volumes & price � valuation monitoring to ensure risk-return trade-off 9
Investment Process: Macro to Micro (MTM) � Macro is an important tool to throw up stock ideas � We pay attention to global as well as domestic macro-economy and industry trends. We think this is important in stock picking as (a) it throws up themes that we will drill further in finding stock ideas and (b) it is important when we build our earnings model to help us assess if analyst estimates will be beaten or missed. � Screen based approach to throw up stock ideas � We are constantly running proprietary screens to throw up mispriced opportunities. � These include valuation screens, trends in RoE/RoCE , free cash flow, gearing levels etc. � In-depth Research & Modelling � We pay strong emphasis to the management team. � Porter analysis to assess the sustainable advantage of the company. � This is combined with the assessment of the future earnings and cash flows of the company, its balance sheet strength as well as valuation parameters like price/earnings ratio, price to book value, EV/EBIDTA etc to decide on the return potential of the stock. � We also pay attention to ownership factors – how much research coverage, institutional holding etc. We try to avoid crowded trades. � Portfolio � We invest in companies where there is a significant upside potential with a margin of safety. � Monitoring � We constantly monitor our portfolio to ensure (a) earnings expectations are on track (b) after share price performance the risk: reward is still favorable. 10
About US About US 11
Why Choose Veda? � Client centric approach � Easy access to founders, fund manager and analyst team � Our skin is in the game � The founders would invest in the same fund with you. � � Our interests are aligned with yours Our interests are aligned with yours � Performance fees incentivizes superior performance � Flexible solutions � We are happy to work with you to find customized solutions to your investment needs. � Strong pedigree and financial market experience � The founder has over 30 years experience in the financial industry and has successfully carved a niche for research based, non-consensus views. 12
The Man Behind PMS � Jyoti has an overall 30 years of experience in the Indian Capital Market including 21 years in DSP Merrill Lynch and 8 years in ICICI. � He was Head of Research and strategist for India at Bank of America Merrill Lynch. He helped build the research team as the leading research provider in India as well as one of the top institutional brokers in the country. � As a strategist, he was rated amongst the top strategists in Mr. Jyotivardhan Jaipuria India by leading institutional investors in India. Founder & Managing Director � Jyoti has also served as a member of the Board of Directors of DSP Merrill Lynch, the Asia Pacific Research Executive Committee and Operating Committee, the India Country Leadership Team (CLT) and other management committees. � Jyoti graduated in Commerce (B.Com) from Sydenham College and has an MBA from the Indian Institute of Management, Ahmedabad. 13
Key Management Team � Daljeet has an overall 20 years of experience in the Indian Capital Market including 7 years in IndiaNivesh Securities and more than 2 years in Emkay Global Financial Services Ltd. � He was Director and Head of Research at IndiaNivesh Securities Ltd. His experience spans across understanding of macro-economic factors and many specific sectors such as chemicals, pharmaceuticals, auto ancillaries, retail, etc. � Daljeet's strengths lie in his ability to relate global macro- Mr. Daljeet Singh Kohli economic situations, political and social factors to their micro Fund Manager impact at industrial sector or company level. � Prior to IndiaNivesh he has been HOR at Emkay Global & IORAM, an Australian company in its Global equity research hub in India. He has also led the Equity research teams in other eminent financial services houses of India. � Daljeet graduated in B.Sc. from Bareilly College and has an MBA from the Institute of Management Technology, Ghaziabad. 14
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